2026 (1) TMI 724 - AT - FEMA

Mis-declared pesticide imports remitted via Hawala using proforma/electronic invoices; evidence admitted, s3(b) breach proved, directors liable, penalties reduced

Dominant issue 1: Admissibility of electronic/proforma invoice evidence under FEMA s39 - Tribunal held statements recorded under FEMA s37 and DRI ... Applications for pre-deposit of penalty - demand of differential customs duties forgone and penalties - payments made to overseas clients through Hawala channels - Contravention of FEMA Section 3(b) - Presumption as to documents​​​​​​​ - importing high value Pesticides/Insecticide/Fungicides from China in guise of chemicals such as “Wetting Agents” - double jeopardy​​​​​​​ - intent to evade payment of appropriate customs duties - HELD THAT:- We find that investigations were made under the provisions of FEMA, as well and the statements of the Appellants were recorded under Section 37 of FEMA. The said statements are also corroborated by the statements recorded by DRI and the admission of guilt by the appellants before the Settlement Commission regarding under-valuation, and thereby, paid the differential amount of Custom Duties along with interest, as directed by the Settlement Commission vide order dated 16.10.2017. The said evidence is also corroborated by the proforma invoices in possession of the appellants recovered during search from the pen- drive in their possession. The contention of the appellants that the said proforma invoices are just quotations and cannot be relied is devoid of merits, seeing the fact that two live consignments were intercepted by the Custom Authorities and it was found the case of misdeclaration by showing the insecticides/pesticides/fungicides as “wetting agents”. There is nothing on record that the said wetting agents were having value equal to the imported consignments. The appellants themselves admitted the facts that they imported the insecticides/pesticides by mis-declaring as wetting agents, in order to compete in the market at competitive prices. They also admitted the fact that differential amount of imported consignment was used to be sent to the exporter based in China through Hawala transactions and also in person while visiting China. Hence, obtaining the recovered material from the electronic devices through DRI, needs to only meet the provisions of Section 39 of FEMA for the present proceedings. Thus, we find that such material has been seized from the custody and control of the appellants under the provisions of Customs Act, which fulfils the requirements of Section 39 (i) of FEMA. These documents have been introduced in evidence in the Adjudication Proceedings conducted under FEMA. Thus, the requirement of Section 39 (b) of FEMA is squarely met. Under such circumstances the Judgments cited by the Appellants in the context of the Customs Act and other Acts would not have applicability. Moreover, in the present case, the penalty is imposed on the Appellants by the Adjudicating Authority only qua the Hawala payments for sending the differential amount to the exporter based at China, which is covered under Section 3(b) of FEMA, 1999. We find that as per investigation, Shri T. Ravikumar was only de-jure Manager of the proprietorship concern, however, the said three directors of M/s Prism were de-facto running the affairs of M/s Osho Organics. We, therefore, find that the case against the said three Directors under Section 42 of FEMA is clearly made out, being the association of individuals for commission of contravention. Thus, they cannot escape from the liability to pay penalty. Now, coming to the quantum of penalty, we are inclined take the lenient view to reduce the penalty amount on the said three Directors and M/s Osho Organics, seeing the fact that they have already paid the differential value of custom duty along with interest before the Settlement Commission, coupled with the fact that they are not in a good financial condition to pay huge amount of penalty as imposed by the Adjudicating Authority. Accordingly, seeing the facts and circumstances of the case, we hereby reduce the penalty amount imposed on all the appellants. Appeals Partly Allowed. Issues: (i) Whether the appellants contravened Section 3(b) of the Foreign Exchange Management Act, 1999 by effecting differential payments to persons outside India through hawala and personal carriage and whether Section 42 of FEMA applies to the directors of M/s Prism for liability; (ii) If contravention is established, what is the appropriate quantum of penalty under Section 13(1) of FEMA.Issue (i): Whether appellants committed contraventions of Section 3(b) of FEMA by sending differential amounts abroad through hawala or personal carriage and whether Section 42 applies to the directors of M/s Prism and others associated with the proprietorship.Analysis: The Tribunal examined statements recorded under Section 37 of FEMA, corroborating material seized from appellants' custody (pen-drive) and documents/statements produced in DRI proceedings; applied Section 39 presumptions for documents seized under another law; considered authority permitting use of Customs investigation material in FEMA adjudication; evaluated jurisprudence on retracted confessions and the standard of proof in adjudication proceedings; and analysed the explanation to Section 42 which includes firms and associations of individuals, finding that the directors of M/s Prism were de-facto running the proprietorship and that the evidence collectively supports contravention findings.Conclusion: The Tribunal held that the appellants contravened Section 3(b) of FEMA and that Section 42 is attracted to the directors of M/s Prism; findings on contravention are upheld against the appellants.Issue (ii): Appropriate quantum of penalty to be imposed under Section 13(1) of FEMA in light of established contraventions and payments already made.Analysis: The Tribunal considered the payments of differential customs duty and interest made before the Settlement Commission, appellants' financial condition, and principles governing penalty assessment; it exercised discretion to mitigate the originally imposed penalty amounts while upholding liability.Conclusion: The Tribunal reduced the penalties imposed by the Adjudicating Authority to the following amounts: M/s Osho Organics (proprietor T. Ravi Kumar) Rs. 6,75,000; Shri Rajasekhar Rs. 10,00,000; Mr. G. Yugendhar Rao Rs. 10,00,000; Shri P.V. Sambasiva Rao Rs. 10,00,000; pre-deposits adjusted against the reduced penalties.Final Conclusion: The appeals are partly allowed contraventions under Section 3(b) (and liability under Section 42) are upheld, but the quantum of penalty is reduced as specified and amounts deposited adjusted accordingly.Ratio Decidendi: Where documents and statements seized from the custody of an accused under one statute are tendered in FEMA adjudication and Section 39 conditions are satisfied, such material may be presumed and relied upon; on a preponderance standard in adjudication proceedings, corroborated statements and seized documentary evidence can sustain a finding of contravention under Section 3(b), and Section 42's explanation including firms/associations permits attributing liability to persons controlling a proprietorship established and operated by them.